Huawei's Western assault: cyber threat or competitive advantage?

By Jeremy Warner

6 December 2018 — 10:43am

Within the sometimes nerdy world of telecoms, it was soon nicknamed the Great Wall of China.

I refer to the exhibition stand at the annual Mobile World Congress in Barcelona where Huawei - a previously relatively obscure Chinese telecoms equipment manufacturer whose name even industry insiders still struggled to pronounce - first unambiguously hoisted its flag on the Western scene.

Huawei's rapid ascendancy and perceived threat to the West, is on myriad levels a parable of our times.Credit:AFR

Seemingly, it had bought up around a third of the exhibition centre's entire available floor space. Huawei had well and truly arrived.

That was 2012, but in fact the company had been active in European markets from well before then. In 2005, the Chinese upstart was awarded the contract to provide BT with core equipment for the telecom operator's then latest program of infrastructure renewal - its so-called 21st Century Network.

Advertisement

Yet it wasn't until some years later that the politicians and security services woke up to the enormity of what was going on. Almost unnoticed, Europe and the UK were becoming highly dependent on a single Chinese supplier for some of their most sensitive backbone communications infrastructure.

Loading

The issue assumed centre stage this week when Alex Younger, the head of intelligence services, said that decisions would soon have to be made on Huawei's participation in the roll-out of next generation 5G mobile phone networks.

As a critical enabler of tomorrow's economy, 5G is perhaps the biggest event in communications since the launch of mobile telephony itself. Already all but the UK and Canada among the so-called Five Eyes intelligence sharing alliance have in effect barred Huawei from participation.

Huawei's rapid ascendancy and perceived threat to the West, is on myriad levels a parable of our times. That's not just because it so perfectly mirrors the rise of China as a whole, together with the country's now pivotal role in the global economy.

It is also because it is deeply symbolic of the way Western economies have surrendered their one-time leadership role across vast swathes of industry and technology, substituting short-sighted faith in the power of markets to allocate capital and resource for long-term industrial strategy.

Technological leadership and expertise is slipping away, with the likes of Huawei ever more ready to capitalise on Western carelessness.

This dates me, I know, but among the biggest names in UK industry when I came into financial journalism were Lord Weinstock of Marconi and GEC fame, Sir John Clark of Plessey and Sir Ernest Harrison of Racal. World-class businesses all at the cutting edge of communications technology, now lost in the mists of time, their intellectual property flogged off, stolen or obsolete, leaving the UK hostage to outsiders to provide the kit that oils the wheels of modern commerce and life.

Originally almost wholly stolen from the West, Chinese technology is increasingly home-grown and even superior to Western counterparts, and 5G is a prime case in point; Ericsson, Nokia, and Cisco, the only three effective alternatives are nowhere close either on price or tech. Much the same thing is in danger of happening with electric vehicles and third-generation battery technology.

Loading

When Donald Trump complains about "Death by China", he's got a point. Western hegemony is under threat as never before. Nor is the threat just an economic one, as MI6's concern demonstrates. Heavy Chinese involvement in communications infrastructure is also a clear security risk, potentially enabling a foreign power to bring the country to its knees and engage in backdoor surveillance.

None of this should be taken as criticism of Huawei itself. Led by the inspirational Ren Zhengfei, a former People's Liberation Army officer, Huawei is an impressive entrepreneurial achievement. Entirely owned by its staff, it employs an astonishing 80,000 in research and development alone. At more than $US13 billion ($18 billion) last year, the company's R&D budget is nearly a third as much as Britain's entire R&D expenditure. Few companies are as representative of the new China as Huawei.

But do we really want our 5G infrastructure to be supplied by it?

Perhaps regrettably, there seem few obvious alternatives. Britain would virtually have to start from scratch to develop competing technologies. It took more than 20 years for Huawei to get to where it is today, and that's with an almost inexhaustible supply of Chinese electrical engineers and software specialists to draw on. That skill set no longer exists on the scale necessary in today's Britain. Playing catch-up is no longer a realistic strategy.

Yet if we follow the US and Australia into effectively barring Huawei, we are likely to end up with inferior and more expensive 5G networks, or possibly none at all on the short timescale currently envisaged, putting the UK at a competitive disadvantage.

Technological leadership and expertise is slipping away, with the likes of Huawei ever more ready to capitalise on Western carelessness.

Two possibilities occur. One is to beef up the current system of vetting Huawei equipment against external influence. Sensitivity about giving the government access to the company's code means that, almost unbelievably, the checks are currently done by Huawei's own employees, albeit British nationals who have been cleared by the security services. Nonetheless, the potential for conflict of interest is obvious.

Yet the more important quid pro quo must be to demand much higher levels of inward investment from Huawei, this on the basis that if you cannot beat them, you should join and partner with them instead.

Beyond vague procurement commitments, there is as now very little in the way of payback, such as a meaningful share of that vast R&D budget. Any such demand would only replicate what Beijing requires of Western companies accessing Chinese markets.

Unlike Russia and other potential cyber risks, China has no interest in destabilising the UK. To the contrary, its interest is only in a prosperous economy into which it can sell.

China's ascent cannot be stopped. The train has left the station. Let's not be naive about it, obviously, but embracing the new Chinese kids on the block is likely to prove a more fruitful approach than rejecting them.